Addleshaw Goddard’s Alexander Sarac shares key trends in carbon trading

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1. How have the global carbon markets evolved based on the growth of investment in clean energy projects?

Investment in clean and alternative energy projects is critical to addressing climate change.

The drivers for these investments were initially tax and subsidy schemes, such as feed-in tariffs and others, but carbon markets also play a significant role in the energy transition.

Although establishing carbon markets is the most direct regulatory approach to mitigating emissions, given they set a tangible CO2 target, these so-called cap-and-trade schemes are still not globally implemented.

The combination of cap-and-trade schemes (such as the EU Emissions Trading System) and offset schemes (to facilitate technology transfer and climate-driven finance, and to reward investments in clean energy) could accelerate investments into green and clean technology and projects.

2. How do you think carbon trading can become a complementary market to traditional fuel and energy trade?

Carbon is a complementary commodity to traditional fuels and energy carriers. If energy carriers contain carbon that will be released through their use, this has an obvious climate impact.

If this is not the case (for example, green hydrogen, ammonia molecules, or green electricity from renewables), there is no negative climate impact.

By putting a price on carbon, you can put a price on the carbon content of an energy carrier and the corresponding energy consumption. Hence, these are complementary and connected units and commodities.

Ultimately, this is the role of the carbon markets – to put a price on carbon that is equivalent to its impact on the climate. Therefore, the market approach plays a key role.

3. Will the increased investment in carbon capture and storage have any effect on the voluntary carbon market or commoditised carbon market?

Carbon capture and storage creates an extra cost for the use of hydrocarbons as an energy source. This extra cost makes the same unit of hydrocarbons more expensive to use.

The extra cost will only be incurred if it is required through regulations or if the user of the hydrocarbons wishes to voluntarily pay the extra cost (directly or indirectly).

Carbon markets create a fair and transparent way to measure this cost and to finance these investments by putting a clear price on the carbon that is stored and therefore not released into the atmosphere.

Large-scale carbon capture and storage investments will likely only be made if the regulatory pressure rises and/or if the carbon price in the market is high enough to capture this extra cost.

4. Why do you think industry conferences are important for the energy, shipping and carbon sectors?

Energy, shipping and carbon are all global in their own right. Energy policy and politics, as well as molecule trade, are global. Similarly, climate change is a global challenge, with its effects remaining unpredictable.

Although these areas of policy and markets interrelate, they often don’t coordinate. However, the energy transition forces everybody to adopt new thinking and exposes policymakers and private sectors to new challenges. For example, the shipping industry is for the first time regulated under the EU Emissions Trading System and must therefore learn how to comply and adjust.

Similarly, energy companies have to identify new markets to lower carbon content and entire supply chains might be replaced in a short timeframe.

Bringing these aspects together creates a forum for dialogue, which encourages parties to learn and quickly adjust to these fast-approaching challenges.

Alexander Sarac is partner – Infrastructure Projects & Energy, at Addleshaw Goddard.

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